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Market Reviews Monthly Review

June 2019 - The central banks lend a helping hand

After a difficult month of May, investors could count on the support of the world’s major central banks in June. The U.S. Federal Reserve and the European Central Bank, among others, reassured the financial markets by indicating that they would provide the necessary monetary stimulus to support economic growth. All assets welcomed the news, especially the riskiest, such as stocks and corporate bonds.


In this broad-based rebound, Canada was the laggard with a timid 2.6% return, as measured by the MSCI Canada Index. On the other hand,  the Canadian dollar’s strength against most foreign currencies reduced the discrepancy vis-a-vis the other stock markets. The Materials sector contributed significantly  to the performance during the period, while Consumer Staples and Energy detracted from the return. The bond market also did well, as yields fell along the entire curve and credit spreads tightened.


The land of Uncle Sam responded the most favorably to the central bankers’ recent easing signals. In June, the MSCI USA Index recorded a gain of 7.1% in local currency. The fluctuation in the exchange rate between the U.S. dollar and our currency reduced this performance. However, expressed in Canadian dollars, the gain is a more modest 3.5%. No sector lost value during the period. The contributions to the total return were well distributed across all the sectors.


The message conveyed by the monetary authorities resonated in Europe as well. The MSCI Europe Index recorded a gain of 4.6% in local currencies. All sectors advanced, with the exception of Real Estate. Even so, the depreciation of the major European currencies against the loonie reduced the return to 3.2% when expressed in Canadian dollars.


The reversal from the previous month applies especially to the Asian market. As measured by the benchmark index, the MSCI Asia Pacific, this market returned 4.3% in local currencies during the month of June. Once again, the strength of the Canadian dollar had an impact: expressed in Canadian dollars, the return for the region was 1.9%. All the sectors contributed positively to the performance. Those that were the weakest last month, namely Consumer Discretionary and lnformation Technology, rebounded with the strongest gains.


Here too, all the sectors improved during the period. As with the Asian market, Consumer Discretionary and Information Technology are the sectors  that contributed the most to the performance. The Canadian dollar’s strength against the emerging markets currencies had an impact: as measured by the MSCI Emerging Markets Index, the performance during the period was 4.6% in local currencies and 2.7% in Canadian dollars.

Sources: Bank of Canada and MSCI Inc.

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